Europe waits for the dust to settle

A man with an esteleda, or Catalonia independence flag, walks along a pedestrian crossing before the 'Yes' vote closing campaign in Barcelona, Spain, Friday, Sept. 29, 2017. Catalonia's planned referendum on secession is due be held Sunday by the pro-independence Catalan government but Spain's government calls the vote illegal, since it violates the constitution, and the country's Constitutional Court has ordered it suspended. (AP Photo/Francisco Seco)

JOHANNESBURG - Global stocks came off record highs and the euro held near a seven-week low yesterday as investors prepared to parse minutes from the European Central Bank’s last meeting for clues to its exit from ultra-easy monetary policy.

Political tensions emanating from Spain, where one of its richest regions, Catalonia, has pledged to declare “independence in days”, was also at the forefront of concerns for European markets. Spain’s government bond yields rose to their highest level since March while Madrid’s stock market headed for its biggest weekly loss of the year.

Eurozone stocks steadied from a wobble on Wednesday, but with public holidays across Asia and some key data due from the world’s largest economy the US coming up later this week, an index of global stocks flat lined.

A poll showed global stocks will rise even more over the coming year as optimism about the global economy grows, but a slim majority of equity strategists polled also said that the current eight-year bull run will end in 2018. There were some eye-catching moves in currency markets as economic concerns at one stage knocked half a percent off the Australian dollar and the rand, and investors mulled whether they had become too bullish on the European single currency.

The amount of cash hedge funds are staking on a rising euro is the biggest in more than five years, the latest positioning data from the Commodity Futures Trading Commission showed.

“Much attention will be directed towards the minutes of September’s European Central Bank meeting, which could offer some fresh insight into the central banks tapering plans. The euro still remains at risk of depreciating further, if the minutes express concerns over the strength of the euro,” said Lukman Otunuga, Research Analyst at FXTM.

The euro was broadly flat yesterday at $1.177 (R16), not straying too far from a seven-week low of $1.169 hit earlier this week.

There is also plenty of uncertainty over the future path of monetary policy in the US, with President Donald Trump promising to decide this month on a new chief to replace Janet Yellen, whose term expires in May.

Economic data will also dictate the path of interest rate hikes in the world’s largest economy, and recently that has been fairly mixed. The dollar was flat against a basket of major currencies yesterday, having slipped a bit on Wednesday after a survey showed hiring slowed to an 11-month low of 135000, partly to disruptions from hurricanes, although this was better than economists’ median forecast.

Economists expect Friday’s non-farm payrolls report, one of the most closely watched pieces of economic data in financial markets, to show a similar slowdown.

They estimate a payroll increase in September of 90000, substantially lower than the average over the past year of around 175000, though some say investors may need to pay attention to state data due on October 20 to exclude the impact from hurricanes.